A provident fund is a contribution made by an employer for the benefit of employees, to receive a cash lump sum payout upon retirement, retrenchment, illness or death.

Unlike a pension fund, there is no annuity monthly payouts for employees and there is no requirement to use the two thirds cash lump sum payments for the purchase of a Retirement Annuity Fund as like in a pension fund contribution.

Provident fund contributions qualify for a tax deduction of up to 27,5% of an employees taxable income (to a maximum of R350,000 per year).

This limit applies to the total of contributions made to all funds for the year.

For example, let’s say an employees taxable income is R10,000 per month and the pension fund contributions amount to R1,600 per month.

This means that the total tax deduction on taxable income for the month is:

(R1,000 x 27.5%) = R2,750

However, because of the actual provident fund contributions are R1 600. Only a maximum of R1,600 can be used to reduce the taxable amount by the actual R1 600 contribution made.

Also a maximum of R29,1666 per month is allowed for all pensions & provident fund contributions taxable income deductions.

• Cash lump sum payments from pension funds are subject to tax according to the cash lump sum tax calculator.
• Other Monthly Retirement Annuity Fund payouts tied to the pension fund are subject to tax at a regular income tax rate.
• Interest income is tax free.
• Dividends are tax free.
• Capital gains on retirement annuities investment funds are also tax free.

Pension fund contributions made by employers are disclosed under company or employee contributions on our payslip, dependent on whom made the contribution.